What Wall Street Is Saying About The ‘Goldilocks’ February Jobs Report

Ok, well markets have had a couple of hours to absorb and ponder the February jobs report which of course beat handily on the headline while missing on the AHE front, a decidedly favorable outcome for stocks, given that the main risk heading in was another average hourly earnings beat.

You can delve as deeply into this as you want, but a couple of things seem pretty clear. For one thing, that goddamn headline number (the 313,000 print) is “bigly”, so you can expect a lot of crowing about it from a certain Twitter-prone “stable genius” once someone explains to him how “bigly” it in fact is. Also, it looks like there’s still some slack in the labor market and that has obvious implications for the Fed.

Still, the robust growth outlook portends a return of inflation pressures at some point, so you probably want to keep that in mind, lest you should get caught off guard again like you invariably were last month when the AHE print tanked everything.

For those of you who don’t give a shit about any of that and just want to know whether it’s safe to buy any dip that comes along, I guess the answer is “yes” (for now) although don’t forget that just because President Dennison ended up backing down from the whole “no exemptions” line on the tariffs by no means suggests we’re out of the woods on that. Just this morning, Merkel’s bloc called Trump’s tariffs (and by extension Trump himself) “absurd”, for instance.

Oh, and we still have to see how effective Powell ends up being at communicating. Forward guidance is an art not a science and then there’s the dots …. oh God, the dots.

In any event, here is some of the early analyst commentary that will of course continue to trickle in throughout the day from whoever hasn’t already headed out to the bar (which is where I would have been by now on a payrolls Friday were this two years ago).

Deutsche Bank

Despite softer wage growth numbers in the latest U.S. jobs report, February’s payrolls report will be remembered for its unusually strong growth elements and should support the dollar.

It’s risk positive on the surface, but when the growth implications are fully digested, inflation fears will easily resurface. Data plays to an eventual test of 3% for 10Y yields and ultimately is likely to be USD positive.

BofAML

The February employment report showed that both the demand and supply of labor increased, preventing wage pressures from picking up. Nonfarm payrolls were exceptionally strong with an increase of 313k in February and net positive revisions of 54k. The household survey was even stronger with household employment increasing by 785k and the labor force adding an additional 806k to the economy. Consequently, the labor force participation rate increased to 63.0% from 62.7% showing an impressive increase in the supply of labor which kept the unemployment rate down at 4.1%. The one weak component in the jobs report was wage growth: average hourly earnings increased by a tepid 0.1% mom which translated into 2.6% yoy as average weekly hours worked picked up after a temporary drop. Today’s “Goldilocks” report suggests the business cycle still has another leg to go: the labor supply is increasing to meet the gain aggregate demand, preventing price pressures from building too aggressively.

The data since the last FOMC meeting have been constructive for a rate hike in March. Inflation numbers have firmed and the labor market continues to expand at a healthy pace with limited wage pressures. Although wage pressures remain muted, doves appear to be less worried as the balance of risks has shifted higher. For example, in remarks this morning, Chicago Fed President Evans sounded more positive on the outlook and appeared willing to be swayed into a faster hiking cycle. Also, Governor Lael Brainard and Atlanta Fed President Bostic’s comments recently struck a more positive tone on the economy. This will likely lead to an incremental shift in the dots in the new set of economic projections but unlikely to shift the median higher. 

Wells Fargo

Nonfarm payrolls rose 313,000 in February with the three-month average at a solid 242,000 jobs. Job gains are consistent with 2.5-3.0 percent economic growth in the first half of 2018, with steady consumer spending, better business investment and a likely FOMC March rate hike, soon followed by another one in June. Jobs gains appeared in many sectors including business services, trade & transportation as well as education & health. Only information services jobs have declined in each of the past three months due to drops in jobs in telecommunications and motion pictures. Over the past three months, aggregate hours worked are up 3.1 percent – very solid and consistent with continued growth in personal income and consumption.

Contrary to the casual rhetoric, Granger causality tests reveal that inflation leads wages—not vice versa. This statistical result follows the theoretical model that workers and employers respond to higher inflation. Workers respond to inflation by trying to negotiate higher nominal wages to maintain a real wage standard. Employers find that higher inflation gives them the flexibility to raise wages and maintain profit margins.

Nominal average hourly earnings rose 0.15 percent in February and are up 2.6 percent over the year—slower than the January pace. While job growth remains strong, the gradual rise in earnings over the past six months signals higher incomes but also pressure on profits as firms have modest top-line pricing power. Longer term, subdued inflation readings and weak productivity numbers suggest limited gains in nominal wage growth